America's Next Top Value Stock

If you think finding true value in the stock market is a simple process, then I have a bridge to sell you.

The markets aren't as efficient as some university professors may want to tell you, but Wall Street generally does a pretty good job of pricing stocks. So although there are good deals out there, you'll have to have to break a bit of a mental sweat if you want to make sure you're putting a true value stock in your portfolio.

Fortunately, in our search for stock market values, we have the 100,000-plus members of The Motley Fool's CAPS community voting on which stocks deserve a look and which are just poseurs. To gather some ideas, I've dug up a handful of companies valued at no more than twice their tangible book value -- a measure that value investors typically use.

Source: Capital IQ (a division of Standard & Poor's), Yahoo! Finance, and CAPS.
*Not including dividends.

Even though these stocks all carry value-like multiples, the CAPS community doesn't think that all of them are worthy of your investment dollars.

Walking the stock runway
It seems there's just not enough love out there right now to make Wachovia, Fannie Mae, or J.C. Penney contenders for the prize.

Wachovia and Fannie have both found themselves squeezed by the housing and credit markets, and they probably feel about as comfortable as Miley Cyrus fielding Hugh Hefner's offer to appear in Playboy in three years. Sure, both companies are cheap on a book-value basis, but many investors are unsure how well their respective book values will hold up. CAPS All-Star leohaas is particularly bearish on Fannie Mae; he wrote, "If it weren't for the government support, this company would be [bankrupt] in no time."

Meanwhile, J.C. Penney -- along with competitors such as Sears Holdings (Nasdaq: SHLD) and Macy's (NYSE: M) -- has been hit by the expectation that tighter household budgets will mean less shopping for U.S. consumers. Though the sentiment on J.C. Penney isn't overly negative on CAPS, players do seem to think that there are better opportunities.

Down to the final two
Dividend dynamo and Income Investor recommendation American Capital Strategies is a fan favorite because of its healthy 13% dividend yield and the expectation that the sell-off over the past year has been overdone. The stock was a former five-star CAPS pick, but its rating, along with its stock price, has been knocked down recently for a number of reasons, including a big accounting charge that it took in its first quarter.

Edging out American Capital on our list is Kookmin Bank -- which looks over capital of a distinctly non-American flavor. The largest private-sector lender in South Korea manages more than $225 billion in assets. Its largest business is making mortgage and other consumer loans, but it also has a large corporate-banking business. As the 800-pound gorilla in the South Korean marketplace, Kookmin claimed to have a retail market share of nearly 50% at the end of 2006 and an even greater share of the population between 20 and 40 years old.

Recently, the bank has been hurt by a tougher economy and tightening lending margins. However, as profits have fallen, so has the stock price, and many investors think the valuation has become particularly compelling. CAPS All-Star hirshey got excited about Kookmin back in early 2007 and noted that the bank had "great valuation measures and unbelievable ratios." This player went on to express expectations that "this bank is poised for big gains as Korean growth continues to build."

Make your vote count!
Do you agree that America's next top value stock may not even be based in the U.S.? Head over to CAPS, and let the rest of the community know what you think.

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